Saturday, February 27, 2010

In previous posts, I have highlighted the importance of teaching financial literacy in high schools. I have discussed student financial literacy and the difficulties associated with teaching. In this post, I want to turn the attention to teachers themselves. Teachers are pivotal to the success of financial education. What do teachers think of financial literacy and how prepared are they to teach financial literacy courses?

A study by Wendy Way and Karen Holden titled “Teachers’ Background and Capacity to Teach Personal Finance: Results of a National Study” published in the Journal of Financial Counseling and Planning in 2009 sheds light on this important issue. More than 1,200 K–12 teachers, prospective teachers, and teacher education faculty representing four census regions responded to questions about their personal and educational backgrounds in financial education. There are several important findings from this study that I would like to highlight:

First, almost all teachers recognize the importance of and need for financial education. As many as 89 percent of teachers agree that students—in order to graduate from high school—should either be required to take a financial education course or pass a financial literacy test.

Second, teachers do not feel prepared to teach personal finance. Fewer than 20 percent of teachers and prospective teachers reported feeling very competent to teach any of the six personal finance concepts normally included in educational standards, such as those identified by the Jump$tart Coalition and in the NEFE High School Financial Planning Program®. Teachers and prospective teachers felt least competent in the more technicaltopics, such as risk management and insurance, saving and investing, and financial responsibility and decision making.

Third, state education mandates appear to have no effect on whether a teacher has taken a course in personal finance, has taught a course, or feels competent to teach a course. Several of the states in the study had mandated financial literacy in high school, so while we might expect teachers in those states to be different, that doesn’t appear to be the case. Currently 80 percent of states have adopted personal financial education standards or guidelines, yet the majority of teachers (about 65 percent) in those states admit not feeling qualified to teach to their state’s financial education standards.

These are worrisome findings; while teachers recognize the importance of financial education, they admit limitations in their preparedness and ability to teach personal finance topics. If you feel discouraged, let me turn now to some encouraging findings reported in this study.

A majority of teachers are open to further education in financial literacy. Interestingly, those who report an interest in additional training are those who have had a college course in personal finance or who have backgrounds in vocational education or social studies. While the majority of teachers engage in a number of financial behaviors that typically help ensure financial security, they express the same financial concerns of the general population. In other words, not only do teachers seem interested in engaging in training to teach financial literacy but that same training may offer personal benefits to the teachers themselves.

This is an important study and has several implications for the discussion surrounding financial education in high school. Clearly, it is not enough to simply mandate financial education. Mandates alone do not make people any smarter. Instead, resources should be devoted to training teachers so that they can implement the standards that are required in financial education. Teachers would welcome this education, may themselves benefit from it, and believe in the importance of financial education. Thus, there are good reasons to expect training to be effective.

And parents, community leaders, and all of you “ambassadors” of financial literacy (identified in my previous blog), please be active, too. If our schools are to adequately prepare students, then consistent, comprehensive, and sound instruction in financial literacy needs to be an important component in every school’s curriculum. But, to adequately prepare our students, we first must prepare our teachers.

A link to the paper mentioned in this article is provided below:http://6aa7f5c4a9901a3e1a1682793cd11f5a6b732d29.gripelements.com/pdf/vol20_2way_holden.pdf

Wednesday, February 3, 2010

I regularly receive e-mails from people who recognize the terrible need for improving financial literacy among young people. Most of the people who write say they want to volunteer their time and teach financial literacy in high school. I am very impressed by how strongly people feel about financial literacy and I have been thinking of ways of harnessing that willingness to help and the generosity of volunteers. Financial literacy is much in need of promoters and organizers. It is a very important issue and we need to work for it.

While I want to encourage everyone to get involved with the schools, I am reluctant to recommend that individual volunteers teach financial literacy in schools, for three main reasons.

1. Contrary to popular belief, it is very hard to teach. I have been at Dartmouth for eighteen years now and I can tell you that every year I have to do a lot of preparation to be able to stand in front of my students and engage them. The first day of class normally ends with a room full of students with baseball caps expertly placed so that I can’t tell whether they are listening or are sound asleep, and a few anxious faces who have been checking their watches for the last 61 minutes of the 65-minute class, and who exit the classroom faster than Speedy Gonzales. And these are the economics students who have elected to be in these classes! It takes a while to filter through the stone faces beyond the first row, and even after years of grueling practice, I barely manage to get through the first half of the term without witnessing a decimated class. It does help to have an Italian mamma instinct, to be armed with limitless patience and unbounded optimism, and to be able to resist the temptation to hang myself from the maple tree outside the window after explaining a concept five different ways and realizing that it is still unclear. If somebody thinks they can just show up in the classroom and teach, I can assure you, it hardly works this way. If you want to teach, you have to be prepared to be trained or the students will “train” you (meaning you will feel like a train has run over you by the end of the class).

2. Individuals seem to have many different ideas about how to approach the instruction of financial literacy. As I have mentioned in previous blogs, financial literacy is a topic grounded in economic and finance theory and it should be taught accordingly. But what I often hear suggested are topics like how to balance a checkbook or how to buy stocks. We need to stay away from these narrow “how to” lessons of financial literacy, as the objective here is to prepare people to understand and navigate a world of complex and changing financial markets. We can’t just tell students how to get from point A to point B; we need to teach them to use a compass. This is no small task and in my view we need a curriculum that teaches the fundamental principals that combine to make one financially literate. Such curriculum development is best done at the national level; inflation does not decrease the value of money differently in Vermont than it does in California or Texas. And while Vermont is much colder than the southern states, it does not freeze how prices work. Once we have developed such a curriculum, there might be a way to engage volunteers in the instruction of it.

3. It’s not always clear how well qualified individuals are to teach financial literacy. In several cases, I have found that college freshmen have set up web pages to teach financial literacy and are eager to go to high schools to offer some classes, even though they may have taken only one introductory course in economics. This is the curse of economics. I have found that many people feel very confident about their views of how the economy works even if they have never read an economics textbook. In other cases, I’ve gotten the impression that people are intent on delivering wisdom and strong values acquired over many years of experience. On the one hand, I am very attracted by the passion that this topic engenders, on the other hand, the dissemination of a sound and consistent knowledge base should be our first priority.

I do not want to discourage anyone who is interested in the pursuit of improving financial literacy in schools. Quite the opposite! Please be involved; do not let the school in your own district not pursue financial literacy, not teach these courses! But perhaps the best role is to be an “ambassador of financial literacy”; be an advocate for financial literacy without going directly to the blackboard. We normally do not let strangers into the classroom, in any course, not just financial literacy. In my view, teaching financial literacy requires a deep knowledge of economics, solid training, and a fair dose of humility. My students would also say that a thick Italian accent helps keeps you awake, but in this case, even that might not be enough!

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About Me

Annamaria Lusardi is the Denit Trust Endowed Chair of Economics and Accountancy at the George Washington School of Business. Previously, she was the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College. She has taught at Dartmouth College, Princeton University, the University of Chicago Public Policy School, the University of Chicago Booth School of Business and the Graduate School of Business at Columbia University. From January to June 2008, she was a visiting scholar at Harvard Business School. She has advised the U.S. Treasury, the U.S. Social Security Administration, the Dutch Central Bank, and the Dartmouth Hitchcock Medical Center on issues related to financial literacy and saving. She is the recipient of the Fidelity Pyramid Prize, awarded to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans. She holds a Ph.D. degree in Economics from Princeton University.